Tag Archives: gold bullion

On the heels of continued volatility in key global markets, the Godfather of newsletter writers, Richard Russell, put out one of his most import notes. This is a fantastic piece where Russell notes that the gold market is now rising on a “stairway of hatred.” The legendary writer also includes 7 key charts.

Richard Russell: “Friday ended with a late sell-off in the Dow, and some fireworks in the gold area. The real gold action was in the mining shares, which, because they are highly leveraged, tend to lead the actual price of gold bullion.

It’s notable that nobody talks or writes any more about the price movement in the market. 99% of everything written about the market has to do with the news and how it might affect the market. As a result, I feel all alone in writing about the action of the stock averages, and its implications.

For instance, I’ve described the “box” or the trading range that we now find the Dow in. What are the implications of a Dow break out above or below the trading range? In the meantime, what are the Transports and the A-D line doing? I search Barron’s for a column or even a paragraph on the price action but not a word. It’s all endless conjectures regarding what the Fed may or may not do.

When I first started Dow Theory Letters in 1958, technicalanalysis was unknown, and most market people called technicalanalysis “voodoo.” I feel as though I’m back in 1958 again.

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Next, I want to talk about another forbidden and hated subject — gold and goldminers (my, how gold is despised these days).

I am going to show charts of some representative goldminers, and you’ll notice that RSI (relative strength) is, or was, in almost all cases below 30 which puts them in the oversold area. And note the bullish action of last Friday, which almost nobody has commented on.

Below, the ARCA “gold bugs” Index

The AMEXgoldminers index

What’s significant is that all these gold items saw RSI in the oversold (below 30) area, and all surged higher on Friday. Also, anti-precious metals sentiment was so black-bearish last week that I thought, along with RSI below 30, that we might, at last, have struck a true bottom in the precious metals. Of course, it’s always possible that after Friday’s explosion, the goldminers may back off this week and test last week’s lows.

Wisawa Wisawachaiwat, the owner of Jongluck Gold Shop in Phitsanulok, said the recent plunge had sparked new interest among small savers. “The prices have fallen to the lowest in years and they are expecting huge profits once the prices climb up again,” he said. Some clients took home gold bars worth 50-100 in baht weight.

The precious metal yesterday extended the decline to a 34-month low amid speculation that the USFederal Reserve will reduce stimulus with economic data beating estimates. Held as a safe bet against inflation, gold lost value as unprecedented money printing by central banks around the world failed to spur inflation.

A lack of accelerating inflation and concerns about the strength of the global economy is also hurting silver, platinum and palladium, which are used more in industry.

Bullion has slid 28 per cent this year, set for the biggest annual drop since 1981, after rallying for the past 12 years. About US$62.4 billion was wiped off the value of precious metals exchange-traded product holdings this year as some investors lost faith in them as a store of value.

While goldbullion slid to $1,180.50 an ounce early yesterday in Singapore, the lowest since August 2010, gold prices in Thailand followed the move. Local gold prices were adjusted 15 times yesterday in line with global volatility. At 5pm, gold bar was sold at Bt17,850 while ornaments were at Bt18,250 per baht weight.

Local gold price averaged Bt17,493.18 in April, 2010, when global prices averaged $1,145.72 per ounce and when the baht was at 32.29 to the US dollar.

Jitti Tangsitpakdi, president of Gold Traders’ Association of Thailand, believed that gold prices could decline further but would not fall below $1,100 per ounce. Cheap prices should spur new demand and the local prices could be cheaper if the baht does not weaken further against the US dollar.

Christin Tuxen, a senior analyst at Danske Bank in Copenhagen, who sees gold at $1,000 in three months, said: “The current environment is a fundamentally poisonous one for the yellow metal. Rising yields are upping the opportunity cost of holding gold, the initiation of a fundamental dollar up-trend weighs, inflation expectations are in decline as the commodities super-cycle wears off, and many tail risks have been sidelined.”

Investors sold 583.2 tonnes of gold this year.

“There’re still people who are interested in gold but because prices have fallen so much and so rapidly, they’ll wait for some stabilisation,” said Alexandra Knight, an economist at National Australia Bank. “There’s definitely been a loss of confidence in gold and that’s seen in the ETF liquidations.”

India‘s official problems with seemingly endless gold demand are well known: with popular demand for gold soaring, and especially so in the past month following the forced price smash of spot paper gold prices, it has gotten so bad that India‘s April trade deficit soared to $17.8 billion as a result of a 138% YoY increase in business gold imports.

Further compounding the desperation of the government to enact firm controls on the free dissemination of gold in a country which according to WGC estimates has 10% of all world gold in its possession (18,000-19,000 of accumulated gold stock) is that in India loans against gold are not only surging, but continue to be one of the primary means for citizens to monetize the gold in their possession, and to get paper currency from banks all too willing to lend out cash against gold.

Which is why in early May, several weeks before the government directly addressed the people pleading for the Indian population to “contain its passion for gold“, the Reserve Bank of India issued a directive prohibiting the granting of advances (i.e., loans) against all non specifically minted gold coins sold by banks (excluding loans against gold ornaments and other jewelry). To wit:

As per extant instructions, banks are currently permitted to grant advances against gold ornaments and other jewellery and against specially minted gold coins sold by banks. However, no advances can be granted by banks for purchase of gold in any form, including primary gold, goldbullion, gold jewellery, gold coins, units of gold exchange traded funds and units of gold mutual funds. While there may not be any objection to grant of advances against specially minted gold coins sold by banks, there is a risk that some of these coins would be weighing much more, thereby circumventing the Reserve Bank’s guidelines regarding restrictions on grant of advance against gold bullion.

Ironically, without imposing specific dimensional limitations, there was the risk that India may boldly go where only a bunch of financially illiterate, click-baiting media dilettantes, desperate to pitch the idiotic idea of a “trillion dollar coin” made out of platinum to bypass the debt ceiling limit (at least until the Treasury was forced to firmly crush this nonsense with a just as idiotic public statement), and arbitrage RBI directive loophole to create a massive coin, against which banks would subsequently lend out cash.

Today, any hope that India may indeed be the first real source of a trillion dollar coin, one made out not of platinum but gold, were crushed, following a clarification by the central bank that there is a firm, 50 gram weight limit on all permitted “specially minted gold coins.” From the RBI:

Since specially minted gold coins sold by banks may not be in the nature of “bullion” or “primary gold”, it was indicated in the mailbox clarification dated April 5, 2011 that there would be no objection to the bank granting loans against these coins. However, as pointed out in the monetary policy statement, there is a risk that some of these coins would be weighing much more, thereby circumventing the Reserve Bank’s guidelines regarding restriction on grant of advance against gold bullion. Accordingly, it is advised that while granting advance against the security of specially minted gold coins sold by them, banks should ensure that the weight of the coin(s) does not exceed 50 grams per customer and the amount of loan to any customer against gold ornaments, gold jewellery and gold coins (weighing up to 50 grams) should be within the Board approved limit.

Well, there goes any hope of a “coin” weighing several million tons. It also means that the record for the world’s largest gold coin will remain with the Australian Mint and its 1 tonne gold coin for quite time.

Also of note in today’s RBI, was the clarification that no loans made against ETF shares as “collateral” may be made either. This will hardly come as news to anyone, considering nobody really knows how many times, and to whom the primary gold in said ETFs has been lent out, rehypothecated, and otherwise seen its ownership title diluted to near zero.

…we have also been receiving references from certain banks asking whether advance against units of goldExchange Traded Funds (ETF) and goldMutual Funds is permitted. As these products are backed by bullion/primary gold, it is clarified that the restriction on grant of loan against “goldbullion” stipulated in terms of our circular dated July 22, 1978 referred to at para 2 above, will also be applicable to grant of advance against units of gold ETFs and units of goldMutual Funds.